Financial Planning for Retirement
Will Your Savings for Retirement Expenses
Be Adequate for Financial Freedom?
Financial planning for retirement is essential for determining whether your savings for retirement can adequately cover your retirement expenses.
It is never too early to start basic financial planning. Though it is a process that is easy to put off, too many find themselves at the end of a working career with no idea how they will survive financially for the next several years.
The average retirement savings for most Americans is probably not enough to fund a retirement lifestyle that meets their definition of financial freedom.
Basic Financial Planning for Retirement
More Important Now than Ever
For the most part, gone are the days when you could expect to retire with a full company pension to take you through your golden years. And, while Social Security benefits can be an important part of the retirement equation, to rely on them alone is taking a risk.
The Social Security program, as it exists today, cannot be sustained over the next several years. One of the alternatives for fixing the program is to reduce the benefits. Though that may or may not happen in the near future, it is a serious challenge to those planning for retirement.
The good news is that the sooner you understand the importance of saving money and start financial planning for retirement, the better the chance you will have to be financially secure in retirement.
The process of planning, combined with the powerful effect of compound interest on your retirement investment options can do amazing things when it comes to ensuring your financial stability later in life.
Prioritize Retirement Financial Planning
When assessing your financial life, you may get so overwhelmed with all of your immediate money needs, that you may lose sight of financial planning for retirement.
While it is true that you must cover your immediate living needs and tackle your debt before moving on to long term priorities, you still must make retirement financial planning part of your financial freedom plan.
As difficult as it may be, I believe that if you have children, you have to make retirement a higher priority than saving money for college. While both goals are important to plan for early on, there are more ways to tackle paying for college than funding retirement.
How Much Will You Need in Retirement?
It is important to think about what kind of lifestyle you want to have in retirement. What will keep you busy? Do you want to practice
frugal retirement living
or will you be spending more on travel, entertainment, etc.?
A simple way to estimate your needs in retirement is to start with your current living expenses. Determine if the standard of living you have now is comparable to what you want in retirement.
Make adjustments for changes that may affect you such as eliminating commuting and wardrobe expenses for work, paying less in taxes, downsizing your home, and changes in the cost of your health care.
What Will be Your Available
Income in Retirement?
Once you know how much you will need to live in retirement, you will have to calculate what funds you will have available to meet your needs. First of all, determine what regular payments you will receive from pensions, annuities, part time jobs, and Social Security. The Social Security Administration has a great tool to
estimate your benefits.
Next, estimate your income from savings and investments. You will need to take into account how much you currently have saved, the number of years until retirement, how much you can add to savings during your working career, and your expected rate of return.
For most people, their
average retirement income is about 25 percent less than the income they have during their working years.
This Retirement Savings Calculator Makes it Easy
These steps may seem a bit complicated, especially when you consider that you also need to figure in the effects of inflation for your planning to be more realistic.
This retirement saving calculator, though simple to use, puts it all together so that you can get a good picture of your retirement situation. It makes financial planning for retirement much less complicated.
Use the Retirement Saving Calculator to
Make Adjustments as Necessary
Now you should be in a position to approach financial planning for retirement from a more realistic point of view. Experiment with the retirement saving calculator. If you find that you will fall short of your retirement goals, determine what adjustments are necessary to change the outcome.
There are a number of changes to consider. You could:
By starting financial planning for retirement early, you will be in a much better position to retire comfortably. Make it a priority to work on it soon.
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